“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into AT&T Inc (NYSE: T)? Today, we examine the outcome of a five year investment into the stock back in 2014.
| Start date: | 05/22/2014 |
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| End date: | 05/21/2019 | ||||
| Start price/share: | $35.38 | ||||
| End price/share: | $32.41 | ||||
| Starting shares: | 282.65 | ||||
| Ending shares: | 370.69 | ||||
| Dividends reinvested/share: | $9.70 | ||||
| Total return: | 20.14% | ||||
| Average annual return: | 3.74% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $12,015.21 | ||||
As we can see, the five year investment result worked out as follows, with an annualized rate of return of 3.74%. This would have turned a $10K investment made 5 years ago into $12,015.21 today (as of 05/21/2019). On a total return basis, that’s a result of 20.14% (something to think about: how might T shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AT&T Inc paid investors a total of $9.70/share in dividends over the 5 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 2.04/share, we calculate that T has a current yield of approximately 6.29%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.04 against the original $35.38/share purchase price. This works out to a yield on cost of 17.78%.
More investment wisdom to ponder:
“As in roulette, same is true of the stock trader, who will find that the expense of trading weights the dice heavily against him.” — Benjamin Graham
